Service tax demand and penalty fail where tax was already paid and road construction activity was held non-taxable.

Service tax demand for the pre-March 2016 period was unsustainable because the audit report itself recorded the demand and the record showed that the amount had already been paid, leaving no surviving liability for that period. The later demand raised from Form 26AS in relation to road construction activity was also held unsustainable on the facts found, as the contracts established construction of roads and the activity was treated as not liable to service tax. With the underlying demand failing, the penalty could not survive independently and was not imposable.

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Issues: (i) Whether the service tax demand for the period up to March 2016 was sustainable when the audit report showed payment of the amount demanded. (ii) Whether the demand raised for the later period on the basis of Form 26AS was sustainable in respect of road construction activity, and whether penalty could survive.

Issue (i): Whether the service tax demand for the period up to March 2016 was sustainable when the audit report showed payment of the amount demanded.

Analysis: The audit report covered the period April 2011 to March 2016 and recorded the demand of Rs. 2,77,928/-. The record showed that the said amount had already been paid by the appellant. Once the audited demand stood discharged, no further demand for that period could survive.

Conclusion: The demand for the period up to March 2016 was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand raised for the later period on the basis of Form 26AS was sustainable in respect of road construction activity, and whether penalty could survive.

Analysis: The later demand was raised on the basis of Form 26AS. The contracts showed that the appellant was engaged in construction of roads. The activity was treated as not liable to service tax on the facts found by the Tribunal. Since the demand itself was unsustainable, the penalty could not stand independently.

Conclusion: The demand for the later period was not sustainable and the penalty was also not imposable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: A service tax demand cannot survive where the amount already stands paid for the relevant period, and a consequential penalty cannot be sustained when the underlying demand is held to be unsustainable on the facts.

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